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CHIC Republic Summary

Core Content

CHIC Republic is a home fashion store chain in Thailand, founded in 2009 by Mr. Kijja Pattamasattayasonthi, a seasoned professional with over 30 years of experience in the furniture and home décor industry. The company operates large, stand-alone stores offering a wide range of products, including furniture, home décor, household items, decorative lights, and mattresses & bedding, under two main brands: 'Chic' and 'Rina Hey'.

Main Points

Brand Strategy

• Chic: Targets the mid-to-upper segment of the furniture and home décor market with unique designs made of natural wood. It offers lower prices than premium brands like Pinski, Luxe Style, and Trendy Life.
• Rina Hey: Targets the mid-to-low end segment with affordable prices and a simple, loft-style design. Launched in 2016, it complements the 'Chic' brand by catering to a broader customer base.

Store Network

• As of end-2017, CHIC had 4 stores in Bangkok (Praditmanutham, Bangna, Ratchapruek) and 1 in Pattaya.
• Each store has a selling area between 6,500 and 12,000 sq.m.
• The Ratchapruek branch is the largest with a selling space of 12,220 sq.m.

Revenue Streams

• In-store sales: The main revenue source, contributing over 70% of total revenue in FY17.
• Project sales: Involves selling ready-to-assemble or custom-designed furniture to residential projects.
• Retail space rental: Leasing parts of its stores to other brands like McDonald's, Starbucks, and various restaurants, enhancing foot traffic and revenue diversity.

Key Financials (FY16-FY18E)

Expansion and Investment Plans

CHIC plans to use IPO proceeds for the following:

• Domestic Expansion: Open 5 new stores within 5 years, including:
  • Ramintra (Bangkok): Expected to open in 2019 with a 9,500 sq.m. selling area and 4 retail shops.
  • Udon Thani: Expected to open in 2020 with a 6,500 sq.m. selling area and 4 retail shops.
  • Chiang Mai: Planning to open with an estimated investment of Bt220mn.
• Overseas Expansion: Open its first overseas store in Cambodia in 3QFY18 at Aeon Mall Sen Sok City in Phnom Penh, with an estimated construction budget of Bt30mn and working capital of Bt8mn.
• E-commerce Development: Launch an e-commerce platform as part of its O2O marketing strategy, focusing on the 'Rina Hey' brand initially.

Earnings Outlook

• FY17: Net profit declined by 37.3% due to lower project sales and higher operating costs.
• FY18: Strong recovery expected with a 151% year-over-year (y-y) profit increase to Bt82mn.
• FY19-FY21: Projected CAGR of 19.5% for total revenue and 48.0% for net profit, driven by store expansion and digital initiatives.

Valuation

• Target Price: Bt1.97/share, based on DCF valuation with WACC of 11.6% and terminal growth of 1.2%.
• P/E Ratio: 32.8x for FY18, aligning with the commerce sector's average. This is expected to drop to 20.4x in FY19 as growth normalizes.

Investment Thesis

• CHIC is positioned as a high-end furniture retailer with a unique product offering and a strong brand identity.
• Its focus on product differentiation and design strategies allows it to capture a diverse customer base.
• The company is well-positioned to benefit from the growing property market, especially in Bangkok and other major provinces.
• The expansion into e-commerce and overseas markets is expected to enhance brand awareness, economies of scale, and profitability.

Competitive Landscape

• CHIC faces competition from major players like IKEA, SB Furniture, Index Living Mall, and Modernform.
• Despite the competition, CHIC has growth potential due to the relatively small size of the high-end furniture segment in Thailand (only 8% of the total market value).
• The company's unique style and value proposition should help it stand out in the market.

Conclusion

CHIC Republic is a promising player in Thailand's furniture and home décor market, with a clear strategy for growth through store expansion, e-commerce development, and overseas ventures. Its unique product lines, strong brand positioning, and recovery in earnings make it an attractive investment opportunity.